The coronavirus pandemic is the first big challenge for Germany's new government and Berlin must create fiscal reserves to be prepared for the next crisis, Chancellor Olaf Scholz from the centre-left Social Democrats said on Thursday.

Scholz's three-way ruling coalition with the pro-spending Greens and fiscally more cautious Free Democrats (FDP) has agreed on a supplementary budget to pump more than 50 billion euros ($56.57 billion) of unused debt into a special fund to enable higher public investments for climate protection, sources told Reuters last month.

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The cabinet of the new "traffic light" coalition, named after the respective colours of the three parties, is expected to present and pass the supplementary budget next Wednesday.

Speaking at a ceremony to hand over his former finance ministry to FDP leader Christian Lindner, Scholz said the role of the finance minister was "very special" as he has to deal with all aspects of government policy.

Thanking Scholz for a trustful cooperation during coalition negotiations, Lindner vowed to respect the fiscal rules of the constitution, use taxpayers money thriftily and strive for solid public finances.

But Lindner also signalled that he would not be too dogmatic, saying he wanted to be a finance minister who provided the money needed to enable the agreed projects of the coalition.

In their coalition agreement, the coalition parties have signalled an openness to reform the European Union's fiscal rules, also known as the Stability and Growth Pact, to enable more investment in the shift towards a green economy.

Cover photo:  Steffi Loos/Pool via Reuters